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Oregon’s Commercial Activity Tax (CAT)

Enacted in May 2019 with H.B. 3427, Oregon’s Commercial Activity Tax (CAT) becomes effective for periods beginning on or after January 1, 2020. Language in the bill makes it clear the federal protections of Public Law 86-272 do not apply, so the CAT will be broadly applicable to virtually all businesses with customers located in Oregon, including corporations and pass-through entities. Oregon’s CAT has been referred to as a mix of the Ohio commercial activity tax and Texas franchise (margin) tax.

Substantial Nexus Thresholds
The legislation indicates that businesses will have “substantial nexus” when meeting certain criteria, including but not limited to: owning or using capital in Oregon, registering with the Oregon Secretary of State, being a resident of Oregon, or exceeding bright-line economic nexus tests.

Bright-line nexus thresholds are as follows:

· $50,000 of rented or owned property in Oregon

· $50,000 of payroll in Oregon

· $750,000 of Oregon source sales

· Nexus would also exist if 25% of a company’s total sales, property, or payroll were in Oregon

Application of tax – Outline

· Unitary groups will file as a single taxpayer and exclude intercompany transactions

· Basis for tax is “Commercial Activity in Oregon”

· Commercial Activity in Oregon is described as:

  • Oregon-sourced sales, with over 40 specific exceptions that include:
    • Interest income, except interest on credit sales
    • Property and amounts received or acquired by an agent on behalf of another in excess of the agent’s commission
    • Receipts from sales to a wholesaler in Oregon, if the seller receives certification from the wholesaler at the time of sale that the wholesaler will sell the purchased property outside the state
    • Receipts from the sale or other disposition of IRC § 1221 or § 1231 assets
    • Dividends received
    • Distributive income from a pass-through entity
  • Less a deduction for 35% of the greater of:
    • Materials costs, or
    • Labor costs
    • (Costs are apportioned to Oregon using its income tax apportionment rules)

· Tax equals 0.57% of Commercial Activity in excess of $1 million for the calendar year, plus $250

Due Dates and Estimated Payments

Estimated tax payments will be due quarterly, payable on the last day of the month following each calendar quarter. The first estimated tax payment will be due April 30, 2020. Annual returns are due by April 15th. The first returns will be due April 15, 2021 for the 2020 tax year.

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